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How much will you bid for that house?
Los Angeles Times
PASADENA, Calif. — Fanned by eBay flames, it was bound to happen. As buyers have regained an upper hand and sellers have started to sweat, real-estate auctions — live and online — have caught on.
The changing market has nervous owners trying to sell quickly rather than letting homes languish while fears of declining values mount.
Buyers, sensing the winds shifting their way, see bargains. And then, of course, there is human nature and the thrill of bidding competition.
It has led to scenes like this one, on June 25 in Pasadena, with Kennedy Wilson auctioneer Dean Cullum bellowing, "Who'd like to open up the bid at $100,000? Do I see $100,000? Over there! Who wants to bid $125,000?"
Minutes later, after a rat-a-tat-tat of climbing offers for a condo, investment partners and auction veterans Robin Morgan and Miriam Wimberly came up with the winning bid of $436,000. "We got a bargain," Wimberly said.
Agents say comps for the 1,023-square-foot, two-bedroom, 2-½-bath condo suggest the sale price was right on target for the neighborhood.
Fueling the auction trend is the comfort level many people have using the Internet, which allows them to take virtual tours of homes they're interested in and to practice their bidding skills on eBay.
Types: In "open-outcry" auctions, an auctioneer calls out bids to the public. In sealed-bid auctions, bidders submit their offers to the auctioneer on the same day, without knowing the bids of other participants. Online auctions are like those on eBay.
Methods: In open-outcry and sealed-bid auctions, properties are offered under three methods: Absolute, in which the highest bidder wins the property, no matter the price; "published reserve," or "minimum" bidding, in which the seller and auctioneer have agreed to accept the published minimum bid or higher; and "unpublished reserve," in which the high bid is subject to the seller's acceptance.
Some open-outcry auctions allow bidding by telephone, proxy or webcast.
Pros: Buyers can sometimes check out properties in advance; auction companies typically allow 45 to 60 days for buyers to attend open houses and hire inspectors. Owners can sell without contingencies.
Cons: Properties not marketed well may bring low offers. Buyers pay most or all of commission fees. "Buyer premiums," as they're called, typically are 7 to 10 percent of the sale price and generally can be rolled into the mortgage. Listing brokers usually get 2 to 2.5 percent; the auction companies get 8 percent. Sellers usually pay some of the marketing and advertising fees.
Advice: Buyers should arrive with a firm ceiling price in mind so they don't get carried away or exceed their loan amounts, which create failed transactions and headaches for the auction company and may mean financial penalties for the would-be buyers. Foreclosure auctions, which take place at the property site or on courthouse steps, are complicated and may not result in bargains because the properties often require extensive work and may have liens against them.
"EBay is the greatest thing that ever happened to our industry," said Steven Good, chairman of Chicago-based Sheldon Good, the nation's largest property auctioneer.
More accepted as a way to sell real estate on the East Coast, the trend has taken longer to capture an audience in the West.
"So many people here think auctions are only for distressed or really bad houses," said Marti Barajas, an executive for Pacific Auction Exchange, a real-estate auction-franchise company. Most homes sold at auction, she said, get there because sellers choose to sell them that way.
How popular have home-buying auctions become?
Gross sales of residential properties rose nationally to $14.2 billion in 2005, up 24 percent from 2003, according to estimates by the National Auctioneers Association, an auctioneering trade group.
Auctions for condos, condo-hotel units and fractional ownerships, in particular, are gaining traction, Good said.
The 70 or so bidders at the Pasadena auction vied for a small unit that could be described as Cinderella before her fairy-godmother makeover. The unit was a probate sale.
Probate auctions — where the owners have died and the properties are sold, usually subject to court approval — make up about 30 percent of residential real-estate auctions, said Todd Wohl, vice president of Premiere Estates Auction Co. in Manhattan Beach. The rest are private-owner sales and foreclosures.
The potential buyers flowed in and out of the condominium, checking out the stained carpets, tired bathrooms and dated kitchen, small bedrooms and tiny built-in bookshelves before gathering in front of the building for the bidding.
Jared West, 26, a real-estate enthusiast and agent, has resisted the temptation to auction his Long Beach home, listed for $2 million. He bought the house more than three years ago for less than $800,000, then renovated it to the tune of $500,000. He has moved to Austin, Texas.
"I'm scared that my investment in my Long Beach home would evaporate if I sell it by auction," West said. "I keep imagining that the day of the auction it will be rainy, and no one will show up."
John Johnston and his two sisters, on the other hand, resisted agents' overtures to list their beachfront property, opting instead for an auction.
One month before the auction, the siblings received an offer of $2.9 million for the triplex on Sunset Beach, an Orange County community north of Huntington Beach, said Johnston and Wohl, whose Premiere company ran the event. But the three decided to take a chance on the public sale. Good thing they did.
The 30-by-90-foot property, bought by their father in the 1960s for $3,500, went to the highest bidder for nearly $3.5 million, including fees. Each of the 68 potential buyers arrived financially prequalified and with deposit checks for $100,000, Wohl said.
Buyers after bargains sometimes look for foreclosure auctions, which take place at the property site or on courthouse steps. The lender's representative typically makes the first bid, up to the amount owed. If no one else bids, the lender gets the property, then sells it.
Outside buyers who win a foreclosure property must pay in full with cash or a cashier's check at the close of the auction. These sales are complicated, experts say, making bargains iffy. Properties often require extensive work and may have liens against them.
Online auctions have grown in popularity since 2001, said RealtyBid.com Chairman Tony Isbell. His company has sold 2,700 properties in the past three years and lists 300 to 400 properties a month. Vacation homes are particularly popular right now, he said.
"The Internet allows someone to bid from anywhere in the world, any time, day or night, over two weeks," Isbell said.
Karen Schmidt, a GMAC Real Estate agent in Atlanta, counts her online sales as a nice chunk of her business.
"Online auctions are especially good when we've tried everything but putting dancing clowns on the roof of a house for sale," Schmidt said. "The investors love the process and watch the clock when the bidding time is counting down. It's an adrenaline rush."
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